Gateway Focusing on Its PC Core to Drive Sales
Wayne Inouye moved quickly after taking over as chief executive of troubled computer maker Gateway Inc.
When Gateway bought rival EMachines Inc. this year, it put Inouye, who then headed EMachines, in charge. Within weeks, Inouye shut down Gateway’s 188 retail stores and began layoffs that would reduce the employee headcount from 7,600 to fewer than 2,000. He has pulled Gateway out of the consumer electronics market to focus more on personal computers and is moving the firm’s headquarters from Poway in San Diego County to Irvine.
An affable man who grew up on a farm in Yuba City, Inouye has an easy smile and simple habits. He professes to never spending more than $6 for lunch. His office is sparse, his workspace punctuated only by a computer, telephone, a pad of yellow paper and a couple of family photos.
Question: Some financial analysts say Gateway is in its death throes. Some have even stopped following the company. How much time do you give yourself to turn the company around?
Answer: The company’s going to survive. To get people to follow us, that’s a different issue. We have to start making money, and we have to start making money consistently. That has to start in 2005, or maybe sooner.
Q: Or else what?
A: I haven’t thought about “or else.” We haven’t focused on the “or else” part. I’ve been more focused on how to get us there.
Q: You’ve taken a number of dramatic moves. What’s been the toughest part of the job?
A: People. Laying off people. If you think about it, it’s not their fault. Yet all these people are losing their jobs, people very loyal to Gateway. They didn’t do anything wrong. They simply work for a company that lost some direction. And then those people who have to go through a transformation, and as much as they say “yes we need to have change,” any time you put people through cultural changes it’s still hard, because they’re used to doing something a certain way. It’s very difficult to get them in a new mind-set.
Q: Why did you decide to back away from consumer electronics, which is something that Gateway pioneered, and which has been copied by Dell Inc. and practiced by Hewlett-Packard Co. and Apple Computer Inc.?
A: When I looked at our end-to-end expenses and cost, and our total margin, we weren’t making any money, first and foremost. You have to look at the cost to support the product after you sell it, so the technical support as well as the cost of servicing the product, and I had to account for the cost of the staff required to support it. But most importantly our retailers weren’t inclined to assort a variety of products immediately, to buy them and put them on their shelves. So it wasn’t a slam dunk, and would have required us to carry a sizable cost structure to keep it alive.
So what we decided to do is, first, identify who we are. I should be able to tell employees what is Gateway about: Who is Gateway? What do we do? I reached the conclusion that we should be telling them, we’re a PC company, first and foremost. That’s our core business. So let’s figure out how to make money in our core business and then expand from that.
Q: Will you continue to sell flat-panel televisions?
A: We are still selling display devices through our professional business. We are not focused at all on consumer electronics products. We are focused on convergence products, which are either PC-enabled or act like a PC. The [Apple] iPod on one end, which is PC-enabled; the other end of the spectrum would be Media Center PCs [which record television], an enhanced PC that is intended to do things that a normal PC does not. It has more entertainment value and more entertainment capability. That’s what we’re going to focus on: everything in between.
Q: In establishing channels with retail partners, did you encounter resistance from retailers who were under pressure to keep you out of the stores from HP, which also has two brands on retailers’ shelves?
A: Sure. They told me flat-out that they had come under pressure from competitors. But the bigger difficulty was the fact that retailers know what our core competencies are, and what our long-term strategic advantages are in the marketplace: our ability to operate at lower cost, offering high quality with world-class customer care. The problem with those core competencies is that you gain share, and you become a significant part of the retail mix. When that happens, if you depend on brands that are unstable, then you really get yourself into a problem.
The question retailers ask is, how much space can I give this brand, in our case EMachines and Gateway. And I think that’s the most troubling question that our retail partners had: How much can we depend on the Gateway management team so we don’t allocate shelf space and help create a brand that is not sustainable?
Q: How can you get consumers to think of EMachines and Gateway when they shop for PCs?
A: With EMachines we’re going to stick to the formula of offering extraordinary value and make the brand available through retailers, and we’re really focused on the price bands we market in. We’re not trying to sell above $600 on desktops, and on notebooks you’re going to see us taking a much more focused approach going forward. The Gateway brand resonates as a premium brand. When you match it up with HP or Compaq or Sony, it ranks right up there with the best brands, including Dell.
Q: Is your office always this bare?
A: This is what it always looks like. There’s more stuff here now than there used to be. My new office is literally a mirror image of this, except I’ll have more windows.
Q: Would you describe yourself as a minimalist?
A: Yes. Why not more stuff? It’s bothersome. I like the Zen thing: nothing to bother me.
Q: Is having stuff distracting?
A: I’ve always been that way. My wife thinks it’s crazy because at home, I don’t like anything on the walls. And of course, she likes stuff. She’s just the total opposite.
Q: As a third-generation Japanese American, do you feel any affinity toward the Japanese market?
A: I do, and they seem to feel a greater affinity toward me than I do them. It’s crazy, it’s nuts. I really get the sense that they’re trying to help me because I look like them: the press, the dealers, everybody. The first thing they tell me is, “You speak perfect English.” Well, it’s because I don’t speak any Japanese.
Q: You’ve expressed admiration for Japanese automakers. What lessons do you draw from them?
A: It’s more of their philosophy -- they can clearly articulate to the world as well as their employee base. The one thing the Japanese do very well is come up with strategies that are fundamental, sound and simple: something that’s very easy to communicate. There are many aspects of quality, and the Japanese, I believe, tend to overcomplicate things when you get way down into how you process or execute different strategies. But the fact that they can go to their employee base and say, “We’re going to stand for quality, we’re going to do this because we’re going to have fewer defects per million than our competition” -- that’s fairly easy to articulate and to understand.
Q: You were quite into guitars when you were young.
A: I was one of the very first people in the United States to venture into the area of vintage guitars. This was in 1971, ‘72, before it became a really big business. I had the first production Stratocaster ever made. They were maple with rosewood fingerboards, but the one I had was all maple neck. It was the beginning of their custom neck line. So it was a really odd Strat, which I ended up selling to Carl Wilson of the Beach Boys. I sold it for $1,500, which was I believe the most a Stratocaster had ever sold for. That was probably ’73. I was told that that guitar today would be worth over a million dollars.
